Dell Freezes Over
The unthinkable has happened: the once impregnable computer behemoth has shown itself to be just another company—susceptible to the kinds of competitive pressures, stock-price plunges, and morale problems from which it was once immune. (To say nothing of laptops flambé.) Now what? Not surprisingly, a reboot is under way.
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During this period, the Dell team was young, overwhelmingly male, and remarkably homogeneous. “We were all clones, and the proof is that eighty percent of us got identical results on the Myers-Briggs personality test: analytical, extroverted, and intensely goal driven,” Bentzin says. “You were surrounded by people like you who were also working eighteen-hour days, and it was contagious.” It was also high pressure, unforgiving, and relentlessly demanding. The hallmark of the Dell culture was to set seemingly impossible goals and then push people to their intellectual and physical limits to achieve them. Build a factory in ninety days from initial planning to full operation? No problem. That was exactly what happened with Dell’s Nashville plant. In 1997 the Nasdaq stock exchange, reeling from an unprecedented volume of trades prompted by a panic in Asia, ordered eight sophisticated new server systems from Dell. Thirty-six hours later, Dell delivered customized, fully tested, ready-to-operate products. (After Hurricane Katrina, it took a dozen Dell workers two weeks to rebuild the data center at Louisiana State University’s Health Sciences Center, in New Orleans—a process that would normally have taken six months.) “Dell made no allowances for the difficulty of the dive,” says Bentzin. “You were expected to enter the water smoothly.” Another former executive told the Austin American-Statesman: “It was like jumping out of a plane with your hair on fire.”
Whatever the preferred metaphor, this collection of amped-up, hypermotivated, type A personalities was having unparalleled success at selling computers all over the world—and biting off huge chunks of market share. In 1997 Dell’s annual sales were $7.8 billion. The next year, they were $12.3 billion. The year after that, $18.2 billion. The year after that, $25.3 billion. Competitive bloodlust was a big part of the Dell culture—the sheer joy at seeing rivals writhe in pain and die. “They used to have ‘Crush Compaq’ parties in which they’d throw Compaq servers off the roofs of buildings,” says a former executive. (Like many Dell exes interviewed for this story, this one asked not to be named, for fear of burning a bridge.)
Dell’s rampaging success was also transfiguring metropolitan Austin, once a sleepy government and university town that was suddenly a magnet for high-tech companies and armies of bright young people who would never have heard of the place a few years before. The company’s exploding Central Texas workforce—which would eventually number 18,000—colonized the pasturelands north of downtown and in neighboring Williamson County, while in the Hill Country, to the west, sprawling Tuscan villas with six-car garages and negative-edge pools rose to accommodate the hundreds of new millionaires that Dell was spawning each year. (There were so many that they even had a name: Dellionaires.) They spent extravagantly on meals and landscaping and cars and were soon interlaced into all of the city’s charities and cultural groups. A city known for being lazy, bohemian, and anti-materialistic was now full of big money, BMWs, and a swarm of bratty, arrogant twentysomethings who had never tasted anything but success, a cultural shift for which Dell gets a good deal of the credit. “It was the surge of Dell that caused Austin to emerge as a high-tech powerhouse,” says Scott Eckert, a former Dell executive who, like so many others, went on to start his own high-tech company. “IBM, Motorola, and 3M had been here, but it was Dell that created the visibility in the nineties.” When Eckert graduated from Harvard Business School in 1995, his classmates thought he was crazy to move to Austin. “At that point, not a soul came here because it was just not known at the time. Four or five years later, Austin was a technology hot spot everyone wanted to come to.”
But by then, as it turns out, the party was almost over. It ended when, on March 22, 2000, the price of a share of Dell stock did something that many employees had never seen it do before: It stopped going up. Then it went down fast, plunging from the mid $50’s into the low $20s. And then, as the dot-com bust rumbled through the economy, yet another unthinkable thing came to pass: Dell laid off five thousand workers. The effect on morale was devastating and immediate. With it came the realization that money was the principal tie that had bound many employees to Dell and that what really defined the company was what Rollins calls “a culture of the stock price.” For fairly obvious reasons, many people found it a mean-spirited, inhuman place to work. “It was a sink-or-swim culture, and everyone experienced it, even the top performers,” says Louise O’Brien, a Dell vice president of corporate strategy. “I felt a lot of anxiety, and when I told them, they said, ‘Oh, no! Not you!’” Still, people tolerated it. “When the stock is going up two hundred to three hundred percent a year, it is remarkable what people will put up with,” says McKinnon. “Because we knew nobody was going to quit, we treated them that way. This was a results-driven place, and we weren’t too concerned with how you got those results. If you had to work your folks twenty hours a day, no problem.”
That was then. In 2001 Dell and Rollins took a company-wide survey to see how people felt about working there. The results shocked them. More than half of all Dell employees around the world said they would leave the company if they could. People felt mistreated, uncared for, driven to meet difficult goals by numbers-obsessed managers. “It was hard to be part of the company during that time,” says an executive who left in 2004. “And the layoffs? It was painful for people to learn that Dell doesn’t love me. You start to wonder, ‘What was the loyalty to all these years?’”
It was this first, disastrous survey that inspired Dell and Rollins to poll their vice presidents and remake the company culture. The vehicle of change was a twice-annual employee survey, known as Tell Dell, in which the lower-downs would rate the higher-ups. At first it was fiercely resisted by managers who believed the new system would destroy Dell’s hard-edged, take-no-prisoners ethos. But Dell and Rollins persisted: Somebody running roughshod over his or her people would soon be identified and rooted out. There was even a set of rules for the new order, which was distributed under the rubric “The Soul of Dell.”
The problem was not just unhappy workers. There was also a leadership vacuum created both by the exodus of talented people who had gotten rich and cashed out and by the promotion of hundreds of managers over many years for the wrong reasons. Now Dell managers were graded on the surveys, and they were expected to show improvement. The idea was to develop leaders in a culture where people were no longer getting rich quick. “The goal is not to make everyone happy,” says Dell. “That is not what we’re trying to do here. What we’re trying to do is to improve performance. We changed the value system. Let’s say you’re delivering fantastic results but you’re not developing your team and not listening to your team. That is just not acceptable, because in a year or two no one will want to work for you.”
Whether this so-called “Winning Culture” program—yes, everything has a name—has really altered Dell’s cultural DNA is open to debate. Dell, Rollins, and McKinnon insist that it has, and they say the proof is in the improving scores on the Tell Dell survey. Others see it differently: “This is an attempt made among leadership to deal with employees according to a different set of standards, but the message never changed,” says a former executive who left the company recently. “People may feel better, but it’s still performance based.” O’Brien agrees: “The idea is to make it a nice, friendlier place to work, a place where they don’t whip the horses as hard. But Dell will probably never be a place for the faint of heart.” Then there are those who say the survey itself has become yet another way to put pressure on managers. “There is an overreliance on Tell Dell,” says a former high-ranking executive. “They used those metrics to beat people up. If you were a couple of percentage points off your peer group, it would be a serious problem. People were bludgeoned with it.” There is also the unresolved question of whether Dell’s slowing sales are a direct result of its morale problems. It is impossible to measure this, of course. But given the urgency with which Dell and Rollins are addressing the problem, it is also impossible to rule it out.
Whatever the case, it should be noted that any talk of caring or nurturing is inwardly directed: The Soul of Dell program coincided with the company’s most brutal assault on the competition to date. As the world reeled from a deep recession and the gathering effects of September 11, Dell launched a vicious price war that was clearly intended to destroy its weakened rivals. The strategy was, You open a vein, and we’ll open a vein, and we’ll see who bleeds to death first. Of course, no one could bleed with Dell. Not then, anyway. In response, Hewlett-Packard and Compaq, rapidly losing market share to Dell individually, cast their lot together in an ill-fated 2002 merger that soon cost high-profile CEO Carly Fiorina her job (HP is only now regaining its footing). IBM, meanwhile, was forced to sell its PC business in 2004, and Gateway was reduced, in the words of Fortune magazine, to “a shadow of its former self.”
The message was clear enough: The nicer, more-caring Dell was going to be no less bloodthirsty on the battlefield.
ANYONE TRYING TO PROVE that Dell’s joyride is over must confront one very large and very dramatic counterargument: China. Having passed Japan earlier this year, it is now the second-largest market for PCs behind the U.S. and the fastest-growing computer market in the world. If you talk to Dell people, you hear over and over again the same article of faith: The future is China. Well, not solely China. There are other huge, emerging markets out there, like India, where Dell will open a plant next year. But China is by far the ripest opportunity, one already providing Dell with the sort of wild, sustained, double-digit growth it dreams about. Admittedly, China could also erupt in social revolution or civil war, wither under Tiananmen Square—style repression, or fall into a long and debilitating economic recession. That is the risk Dell, and every other company doing business in China, will have to take.
In June I traveled to Xiamen, a coastal city of a million and a half people some three hundred miles northeast of Hong Kong, to see what the future of Dell—and the computer business—actually looks like. The company’s computer plants are here, where broad-shouldered mountains rise from the Taiwan Strait, sparkling skyscrapers jostle with crumbling Mao-era tenements, and late-model Lexuses cruise next to creaking bicycles that look as if they must have been old at the time of the Long March. Like everything else in China, Xiamen is a titanic clash of old and new, and nothing represents the new more than Dell’s low-slung, white-stone-and-mirrored-glass plant, which opened this month near the city’s airport. This is where the company makes PCs and servers for export to South Korea, Japan, and Hong Kong; next door, a slightly older Dell plant produces for the Chinese market.
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